This is the second article in our 4 part series (click here for part 1) on recent big trades by Donald Yacktman. By analyzing them, investors can learn a thing or two about the rationale behind the trades.
EBay Inc (EBAY): The stock position has been steadily trimmed from the portfolio since the fourth quarter of 2010. The last sale was in the second quarter- 300 000 shares at $31.35 leaving 1, 49 million shares remaining in the portfolio.
The company is currently valued at $39.7 billion with a price/earnings multiple of 22.1 (trailing twelve months), much cheaper than Amazon (AMZN) – 92.63.
EBay should report good results for the coming quarters. Solid growth in PayPal should continue with its market domination on the online payment scene. Another growth avenue is acquisitions, where EBay has been active recently.
The balance sheet is strong which is helpful for additional buyouts and share buybacks. Going forward, the company’s immense size and business model ought to help it garner substantial profits. Investors should keep in mind that the industry EBay operates in is fast changing and highly competitive.
US Bancorp (USB): There are over 10.7 million shares currently in the portfolio, making up 2.9% of total assets managed. First quarter buy – 1,740,940 shares, average price of $27.13. Second quarter buy - 3,053,194 shares, average price of $25.17.
At the time of writing, the stock traded at $23.21, valuing the company at $44.5 billion, current price/earnings of 11 and a ten year low price/book of 1.49. Almost on par with Wells Fargo (WFC), price/earnings- 10.2 and more expensive than JP Morgan Chase (JPM), price/earnings-8
June period results were solid. Revenue rose 6% to $4.7 billion with net income rising 57% to $1.2 billion and diluted earnings per share rising 33% to $0.6. Growth drivers were net interest income and fee based revenues and a $567 million decline in loan loss provisions.
The banks credit quality is better than its peers and on the rise, with relatively high provision for loan losses. Going forward, the decline in loan loss provisions should be a major earnings driver. The company’s solid fundamentals, careful risk aversion practices, geographic presence and wide product range should help its annual earnings to grow by at least 10%.
Intel Corp (INTC): This is a new addition to the portfolio. First quarter buy- 2,119,200 shares, average price - $21.1. Second quarter buy- 237,800 shares, average price - $21.85, bringing total amount of shares held to 2,357,000 which makes up 0.55% of the total assets under management.
At the time of writing, the stock traded at $20.13, valuing the Intel at $105.7 billion, current price/earnings multiple of 9.3 and price/book of 2.2, slightly above its ten year low of 1.99. Almost on par with Texas Instruments (TXN), price/earnings- 10.5 and more expensive than Advanced Micro Devices (AMD), price/earnings- 6.3
Intel reported good second quarter results- GAAP revenues climbed 21% to a record $13 billion with GAAP earnings per share rising 6% year over year. All business units recorded double digit growth, with strong corporate demand, soaring usage of mobile devices, higher internet traffic and rapid rise of computing in emerging markets driving top and bottom lines.
Management expects third quarter GAAP revenues to be $14 billion, exceeding analyst estimates. The stock price has fallen roughly 14% since the earnings report came out, presenting an ideal entry point for long term investors.
Cisco Systems (CSCO): There are over 29.6 million shares in the portfolio. First quarter buy- 5,658,362, average price-$19.45. Second quarter buy- 18,593,554, average price-$16.48. This holding makes up 3.06% of the portfolio.
At the time of writing, Cisco is valued at $85.8 billion, stock traded at $15.67 with price/earnings ratio -13.4 and ten year low price/book-1.82. Cheaper than Alcatel-Lucent (ALU), price/earnings-18 and more expensive than Hewlett Packard (HPQ), price/earnings- 6.1. The recent article gave fair coverage on the stock,
Donald Yacktman’s investing philosophy is to buy “growth” companies at a low price. The company’s recent earnings report and guidance coupled with its low valuations are in sync with Yacktman’s philosophy.
Bank of New York Mellon (BK): Yacktman has been steadily adding this stock since the fourth quarter of 2009. Holds just under 2.3 million shares which make up 0.2% of the portfolio. First quarter buy- 504,054, average price-$30.64. Second quarter buy- 750,641, average price- $27.84.
At the time of writing, the stock traded at $20.67, valuing the company at $25.5 billion, price/earnings-9.7 and ten year low price/book- 0.76. More expensive than Barclays (BCS), price/earnings-8 and JP Morgan Chase (JPM), price/earnings – 8.02.
Second quarter results were solid and total revenues jumped 15% to $3.9 billion with earnings per share advancing 7%. Investment management (22% increase in assets under management) and service business segments (21% increase in assets under management) were bright spots. Investment management and performance fees also rose 14%, reflecting higher market values and new business.
The bank also repurchased 9.8 million shares which, in addition to a substantial rise in deposits, bolstered its balance sheet. Going forward, the bank should benefit from its expansion into emerging markets and the growing baby boomer population who will require its wealth management and retirement services.